Please ensure Javascript is enabled for purposes of website accessibility

Salesforce Earnings: Why I'll Be Watching Guidance

By Daniel Sparks - Aug 28, 2018 at 10:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Management has made a habit of raising its outlook for full-year revenue.

Software-as-a-service company Salesforce (CRM 1.98%) is slated to report results for its second quarter of fiscal 2019 on Wednesday. Expectations are unsurprisingly high going into the earnings release. Not only has Salesforce's stock surged 61% over the past 12 months, but its first-quarter results featured significant momentum; Salesforce reported better-than-expected top- and bottom-line results and a notable acceleration in revenue growth.

With the company seemingly firing on all cylinders, investors will scrutinize Salesforce's second-quarter results closely. In addition, investors will likely pay particularly close attention to any forward-looking commentary provided in the second-quarter update. Specifically, thanks to Salesforce's strong performance recently and its higher stock price, investors should look for the customer relationship management (CRM) platform provider to raise its outlook for full-year revenue.

A diagram of laptops connected to a cloud

Image source: Getty Images.

Habitual guidance revisions

A combination of management's conservative forecasts and Salesforce's relentless growth has meant that the company has raised its full-year revenue outlook every quarter for years, leading investors to expect it.

Consider the difference between Salesforce's initial guidance for fiscal 2018 revenue to be between $10.1 billion and $10.15 billion. Just two quarters later, management was guiding for full-year fiscal 2018 revenue to be between $10.25 billion and $10.30 billion. But actual revenue for the fiscal year ended up coming in at $10.48 billion. Similar trends played out in fiscal 2016 and fiscal 2017.

For fiscal 2019, Salesforce's "beat-and-raise" practice is already well underway. When Salesforce reported its fiscal 2018 third-quarter results, management was guiding for full-year fiscal 2019 revenue between $12.45 billion and $12.5 billion. But after raising its guidance for full-year fiscal 2019 revenue in both of Salesforce's most recently reported quarters, management is now expecting fiscal 2019 revenue between $13.075 billion and $13.125 billion.

Analysts, of course, have caught on to this long-standing trend. On average, analysts expect Salesforce's fiscal 2019 revenue to come in at $13.13 billion -- just above the high end of management's current guidance range for the key metric. 

What to expect from Salesforce's revenue guidance

With this backdrop, it's easy to see why investors should expect Salesforce to raise its outlook for full-year fiscal 2019 revenue yet again when it reports its fiscal second-quarter results on Wednesday. This is especially true in light of the company's accelerating revenue growth in Q1 and the stock's soaring price recently.

If Salesforce's recent guidance raises are any indication of the full-year revenue outlook management may provide in its second-quarter update, investors should look for an outlook for fiscal 2019 revenue between about $13.125 billion and $13.135 billion.

Of course, there're no guarantees. There's always a possibility Salesforce's trend of raising its guidance comes to an end. Such an outcome would likely disappoint investors, highlighting a risk to owning a growth stock with so much momentum.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, inc. Stock Quote, inc.
$160.04 (1.98%) $3.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.